Know the differences in crop insurance

MANHATTAN, Kan. – Farmers have just a few more weeks to choose insurance on spring-planted crops and Kansas State University agricultural economist, Art Barnaby, wants to make sure they understand their options.

“Growers have many new choices in the insurance market combined with substantial increases in subsidies,” said Barnaby, farm management specialist with K-State Research and Extension.

“Crop insurance will be very cheap compared with the premiums that were paid last year for similar coverage. They’ll (farmers) benefit especially in the riskier growing areas from a reduced premium cost for coverage that is very similar to the Crop Revenue Coverage contract.”

But, because of marked differences in some of the contracts, it will pay to know the differences, he added.

March 15 is the deadline for farmers to purchase USDA-subsidized crop insurance.

New products include Revenue Assurance and Revenue Assurance with the Harvest Price Option, which both offer coverage of 65 percent to 75 percent with basic and optional units.

“Units are something bigger than a field, but smaller than a farm,” said Barnaby.

“To buy coverages above 75 percent under Revenue Assurance, the grower must agree to an enterprise unit, which means the entire farm is insured as a single average yield, unlike basic units or optional units that insure each unit independently,” he added.

“Each unit is insured independently of the other units,” the economist explained. “So, if one unit is hailed out, the farmer is paid. Under an enterprise unit, the whole farm is insured as a single unit.

“Therefore, if one section is hailed out, the loss is averaged across the entire farm (enterprise unit).”

“It’s important to understand that the Revenue Assurance contract is substantially different than the Revenue Assurance with the Harvest Price Option contract.

“The names are similar, which may be confusing, but the Revenue Assurance contract does not provide the same coverage level as Crop Revenue Coverage or Revenue Assurance HPO because in a rising market, the indemnity payments actually decrease,” he said.

“Therefore, many growers will select the contract that costs the least for their farm. Farmers will have to get a quote from their agent before they will know which costs less.”

The final Crop Revenue Coverage premiums are set on March 1, based on the February average of closing prices of the December 2001 Chicago Board of Trade corn futures contract and the February average closing price of CBOT November 2001 soybean futures.

The final Revenue Assurance premiums will not be set until five days before sales closing, when the official implied volatility factor will be announced.

“As a general rule, Crop Revenue Coverage premiums are more competitive in lower-risk growing areas, while Revenue Assurance-HPO will likely be the product of choice in the high-risk growing areas,” the economist said.

“Finally, the premium differences are greater at the higher coverage levels. Often there are only small premium differences at the 65 percent coverage levels.”

Interested persons can access www.agecon.ksu.edu for more information. The Web site also offers a side-by-side comparison of the several new insurance programs.